Expensive stocks typically earn their valuations through superior growth rates that other companies simply can’t match. The flip side though is that these lofty expectations make them particularly susceptible to drawdowns when market sentiment shifts.
Determining whether a company’s quality justifies its price causes headaches for nearly all investors, which is why we started StockStory - to help you separate the real opportunities from the speculative ones. Keeping that in mind, here is one high-flying stock with strong fundamentals and two where the price is not right.
Two High-Flying Stocks to Sell:
Texas Instruments (TXN)
Forward P/E Ratio: 29.5x
Headquartered in Dallas, Texas since the 1950s, Texas Instruments (NASDAQ:TXN) is the world’s largest producer of analog semiconductors.
Why Do We Think Twice About TXN?
- Annual sales declines of 11.6% for the past two years show its products and services struggled to connect with the market during this cycle
- Efficiency has decreased over the last five years as its operating margin fell by 5.8 percentage points
- Free cash flow margin dropped by 28.4 percentage points over the last five years, implying the company became more capital intensive as competition picked up
Texas Instruments is trading at $177.67 per share, or 29.5x forward price-to-earnings. Check out our free in-depth research report to learn more about why TXN doesn’t pass our bar.
Hyatt Hotels (H)
Forward P/E Ratio: 33.7x
Founded in 1957, Hyatt Hotels (NYSE:H) is a global hospitality company with a portfolio of 20 premier brands and over 950 properties across 65 countries.
Why Do We Avoid H?
- Revenue per room has disappointed over the past two years due to weaker trends in its daily rates and occupancy levels
- Estimated sales growth of 3.5% for the next 12 months implies demand will slow from its two-year trend
- Negative returns on capital show management lost money while trying to expand the business
Hyatt Hotels’s stock price of $123.62 implies a valuation ratio of 33.7x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than H.
One High-Flying Stock to Buy:
ServiceNow (NOW)
Forward P/S Ratio: 13x
Founded by Fred Luddy, who coded the company's initial prototype on a flight from San Francisco to London, ServiceNow (NYSE:NOW) is a software provider helping companies automate workflows across IT, HR, and customer service.
Why Are We Bullish on NOW?
- Customers view its software as mission-critical to their operations as its ARR has averaged 22.7% growth over the last year
- Excellent operating margin of 12.4% highlights the efficiency of its business model, and its operating leverage amplified its profits over the last year
- Strong free cash flow margin of 31.3% enables it to reinvest or return capital consistently
At $834 per share, ServiceNow trades at 13x forward price-to-sales. Is now the right time to buy? See for yourself in our full research report, it’s free.
Stocks We Like Even More
The elections are now behind us. With rates dropping and inflation cooling, many analysts expect a breakout market - and we’re zeroing in on the stocks that could benefit immensely.
Take advantage of the rebound by checking out our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like United Rentals (+322% five-year return). Find your next big winner with StockStory today for free.
